Stock Rally/Citi Memo: Hiding Losses Endorsed by Bernanke

[SOS]

Tuesday March 10: Citi memo announces a return to "profitability". Market soars 379 points.

Wednesday March 11: Found buried on page B5 of today's New York Times:

"Mr. Bernanke stoked a new controversy by endorsing more flexible accounting rules that would not force banks to book as many losses during an economic downturn as current rules require.
In so doing, the Fed chairman came closer than other top officials to supporting a policy known as “regulatory forbearance,” a phrase that became an epithet among policy makers after the savings and loan crisis of the early 1990s.
Investors and supporters of the banking industry cheered.
But some regulatory experts denounced Mr. Bernanke’s proposals, saying they would merely give banks new ways to hide their true losses."

http://www.nytimes.com/2009/03/11/business/economy/11fed.html

A return to profitability is easy! Just don't count losses.

(Warning: This stunt performed by Wall Street professionals. Do not try this at home.)

[FedUpWithIt All]

1. Rec'd. n/t

[Gin]

3. when will the new regulations go into effect? we are giving away

the farm under the same old rules to the same people who caused this collapse...

[FedUpWithIt All]

5. Are you suggesting this is a good thing?

They are changing the rules to hide the faultiness of a "product" from a consumer. Who wins and loses in this scenario? It is usually the ones who are secretly in on the rule change and not those investing under false pretenses.

[radfringe]

2. check the kitchen

bet the cooks are using Betty CROCK-O-CRAPPER recipes....

[seafan]

4. So, this must by why Citi rallied yesterday. Bernanke's magic trick: 'Banks, hide your losses.'

From the NY Times yesterday:

WASHINGTON — The chairman of the Federal Reserve, Ben S. Bernanke, called on Tuesday for a broad overhaul of financial regulation that would include a powerful new regulator to keep a much tighter grip on institutions considered “too big to fail.”
At the same time, Mr. Bernanke stoked a new controversy by endorsing more flexible accounting rules that would not force banks to book as many losses during an economic downturn as current rules require.

In so doing, the Fed chairman came closer than other top officials to supporting a policy known as “regulatory forbearance,” a phrase that became an epithet among policy makers after the savings and loan crisis of the early 1990s.
Although the Fed chairman did not use that phrase, he called for reducing the “pro-cyclical” aspects of current regulation — the tendency of accounting rules and capital requirements to aggravate both financial retrenchment during a slowdown and financial excesses during a boom.

Investors and supporters of the banking industry cheered. The battered shares of Citigroup and other banks rose more than 20 percent, though part of that was in response to a statement by Citigroup’s chief executive that the bank turned a profit in the first two months of this year.

But some regulatory experts denounced Mr. Bernanke’s proposals, saying they would merely give banks new ways to hide their true losses.
“If Bernanke thinks he can regulate the cyclicality out of banking, then he’s a fool,” said Lynn Turner, a former chief accountant at the Securities and Exchange Commission. “If you’re regulating banks and you’re doing a good job, you’re making sure that the banks are building their capital reserves during good times. The problem in this country has been that the regulators became captives of the banks and didn’t require them to build up enough capital.”

.....

Mr. President, the window of opportunity for action is closing rapidly.


IMHO, Geithner's position at Treasury is a black mark on this young administration.



(bold type added)

[Supersedeas]

6. hiding the truth in finances -- isn't that what lead to the problems we have now

[truedelphi]

7. In his address to the Council on Foreign Relations yesterday,

Bernacke said that the Federal Reserve would need to take charge of all the monetary infusions going on for the banking industry.

So how transparent is that? He is giving the banks a great deal of leeway - they won't be asking him too many questions. He won't be asking them too many questions either - and remember it is the bankers in the loop that are getting the funding. Buffet was complaining recently that his bank has AAA credit, and yet cannot receive one penny of BailOut money. He is very upset about it.

And banks that are in trouble but not in the loop don't get help either.

We need only to look at how Wells Fargo and Citibank wanted Wachovia. WELLS FARGO WAS IN A BETTER POSITION IN TERMS OF LIQUIDITY AND SOLVENCY, BUT OUR GOVERNMENT THREW UP ROADBLOCKS IN W.F.'S ATTEMPTS TO ACQUIRE WACHOVIA.

This bears some resemblance to what used to happen under the Politboro.

[marmar]

8. Has no one learned anything from the Enron mess?

n/t

[Greyhound]

9. No. Nor the previous "fairy-tale rallies"of the last 30 years.

The blatant lies in '87 and again under 41 that delayed the inevitable collapse were so successful at "kicking the can down the road" that they just believe they can keep it up forever.

Apparently Americans are just so afraid of learning about, or maybe just so uninterested in, economics that these sleeze-balls can do anything they like with impunity.